That contrasts with the official word from Microsoft, which said is his move was NOT a demotion.

His title is still President (his replacement, Terry Myerson, is a VP). Also, Ballmer has sometimes put execs in this kind of "report directly to me" holding position while he gets ready to put them on a big new project that is still secret.

That said, it sure looked like a demotion from the outside.

Windows Phone hasn't performed well in the last year -- it's stuck at under 2% market share -- and Microsoft CEO Steve Ballmer is not shy about removing leaders whose products aren't meeting sales expectations.

Lees also has a history of alienating hardware partners, according to The Verge's report.

For instance, he reportedly approached Motorola about cooperating on Project Pink -- which would eventually become the ill-fated Kin Phone -- but rejected Motorola when it asked to work on software as well as hardware. Motorola eventually became Android exclusive, and is now being bought by Google. (If this is true, we'd actually suggest that Motorola and its shareholders send Lees a thank you note, given how well the Kin did.)

Lees is also apparently being held to account for the lack of progress on a highly touted Windows Phone deal between Microsoft and LG. That deal angered HTC, another Windows Phone partner, which also increased its Android investment.